While the supply chain has undergone massive transformation – much of it via automation – in the past two decades, one link in the supply chain has not experienced the level of automation others have. Where? Just walk through the accounting department and look for the stressed out employees buried under stacks of paper. Welcome to Accounts Payable, home of the next wave of supply chain innovation, according to Verian Technologies.
Underappreciated, viewed as non-strategic, and a link in the supply chain that's often taken for granted, Accounts Payable can be a surprisingly costly and inefficient bottleneck to supply chain effectiveness. Aberdeen Group reported last year, "Only one-third of all enterprises have any significant level of automation in place." Their research also revealed that "demand for e-payables solutions is on the rise."
Although most purchasing is conducted electronically these days, Aberdeen reports that 85 percent of the invoices resulting from these purchases still arrive in a paper format. The average cost to process an invoice – paper and electronic combined – is around $22. Multiply that by the hundreds of thousands of invoices that the typical Fortune 1000 company receives each year, and the annual costs are easily in the millions. Just to pay the bills.
But the costs of an inefficient financial chain don't stop there. They affect the material supply chain as well. Paper invoices are notoriously inefficient, and days to pay a paper invoice are significantly longer than for an electronic invoice. Consistently late payments erode Purchasing's relationships with suppliers and buyers' leverage in negotiating more favorable rates and terms.
In addition, the ability to take early pay discounts is often a pipe dream for organizations with high volumes of paper invoices. Simply taking 2-10 Net 30 terms is the equivalent of achieving a 36 percent annual return on money owed. Where is your average, law-abiding company going to find investment opportunities paying 36 percent?
As the economy becomes more uncertain, CFOs, Treasurers and Controllers are scrutinizing working capital more than ever. Visibility into working capital has become a holy grail of sorts. Finance is playing a more active role in helping plan the timing of capital purchases to maximize cash on hand. What can obscure that visibility is outstanding invoices – usually ones for purchases that do not originate with a purchase order. These non-PO invoices are received by field offices and sit on desks for weeks or months before they are finally approved and sent to centralized AP. These outstanding invoices represent cash that has to be paid – a "liability" in financial terms. With poor visibility into these invoices, working capital is hard to forecast. For publicly held companies or companies with public debt, an incorrect statement of liabilities violates the Sarbanes-Oxley Act, which can bring financial penalties, loss of shareholder confidence and even jail.
Verian Technologies says it is investing in developing "next-wave" solutions that improve supply chain effectiveness by reducing the bottleneck in AP. Specifically, Verian offers a blend of solutions that enable electronic invoice capture (supplier portal, EDI, XML, document imaging, outsourcing). In addition, Verian has developed technology aimed at reducing the need for human involvement in reducing invoice exceptions and is offering its customers the ability to take advantage of "dynamic discounting" capabilities through a portal that allows suppliers to offer an early-pay discount and specify the discount amount and days to pay.
The convergence of the physical and financial supply chains presents a "next wave" for supply chain improvements, and Accounts Payable is an important common link between the two chains. Verian says that it recognizes this link and that it is poised to help organizations convert AP from a bottleneck to a strategic asset.
Consider e-procurement solutions that leverage B2C e-commerce technologies such as meta-search and intelligent agents that take better advantage of the Internet and online content rather than conventional database-centric solutions. Vinimaya, for example, says it offers solutions that allow users to search and shop directly from suppliers' Internet-based web sites, industry marketplaces, catalog aggregators and supplier networks (without requiring XML punchout support), as well as their internal catalog database, all from a single user interface, without ever leaving the e-procurement system. The result, Vinimaya says, is that its customers are averaging 90 percent of their catalogable spend available to requisitioners.
Xcitec specializes in software for supplier management and supplier relationship management (SRM), and its Supplier Rating solution enables a purchasing organization to evaluate the supplier cross-functionally. Importantly, the reverse rating method actively incorporates the suppliers themselves in the evaluation process, allowing suppliers to rate the company they supply and/or to evaluate themselves. In this way, discrepancies between a company's self-perception and how it is perceived by the buying community can be identified as a basis for further negotiations and improvement projects. Over the long term, reverse rating can provide a basis for strengthening relations between companies and suppliers through useful feedback and improvement methods.
Vernon Hills, IL/USA
Integration & Infrastructure/ERP
Case Study: Odom's Tennessee Pride: A Prime Example
Odom's Tennessee Pride is a well-known producer of high-quality sausage meat products sold to major supermarket chains and specialty retailers. Because of the volume of Tennessee Pride products required to fill orders, the company could not take a slap-and-ship approach to meeting its customers' RFID compliance mandates. In addition, outsourcing RFID labeling to the company's dedicated cold storage third party logistics provider (3PL) was not an option because the 3PL did not have RFID capabilities.
"Our process required that we be able to apply RFID tags in a real-time, in-line process in our plant," said Mike Hader, Odom Tennessee Pride's director of information technologies. "We were also interested in using RFID not only to meet the mandate but also to improve our own processes."
That brought a new set of challenges because plant operations were highly automated and efficient, so the RFID system had to fit in without slowing things down. Tennessee Pride runs production for two shifts, then tears down and cleans its lines during the third. The lines are in constant use, so there is no time available to shut down to test and troubleshoot RFID configurations. "We looked for a partner who could provide a reliable, scalable system and bring in vendors with world-class capabilities to fit into a large-scale IT infrastructure, while causing minimal change to the processes we already had in place," said Hader.
After careful evaluation, Tennessee Pride found the solution partners it was seeking. Rush Tracking Systems provided the integration and engineering expertise and relied on Zebra Technologies to provide high-performance, reliable and integration-friendly RFID printer/encoders. Rush integrated Zebra's R110XiIIIPlus printer/encoders and RFID middleware from OATSystems into Tennessee Pride's production lines and industrial control system.
The system passes data from Tennessee Pride's ERP application to an R110XiIIIPlus on the production line, which generates a carton label with bar code and human readable information, plus an EPCglobal UHF Gen 2 RFID tag. An automated applicator from Weber Marking System applies the smart label to the moving carton at production speeds.
The system can handle regular orders requiring RFID labels interspersed with orders that do not require RFID. After the cartons are automatically labeled, the conveyor and industrial control system route them to the appropriate palletizing station. Once the pallet has been robotically stacked and wrapped, workers use a Zebra cart-mounted R110XiIIIPlus printer/encoder to produce the pallet label, which is hand-applied. Labeled pallets are then brought through an RFID portal reader for order validation prior to releasing them for shipment.
With this world-class system in place, Tennessee Pride met its goal of compliance without compromise. Plant operations continue to run as quickly and efficiently as before, but the RFID labeling system is running even more smoothly than Hader expected. Tennessee Pride is also meeting its goal of using RFID to improve operations.
"One of the ways Tennessee Pride attempts to be a leader in food safety and quality is through our use of technology. We are using the data we get from our RFID system, and we are always looking for ways to improve our processes and the technology that our processes depend upon. We find that RFID is a great benefit," Hader concludes.